The Latest: Powell sees current slowdown as temporary

FILE- In this Jan. 30, 2019, Federal Reserve Chairman Jerome Powell speaks at a news conference in Washington. The Fed has made clear that with a dimmer economic picture in both the United States and globally, it no longer sees the need to keep raising rates as it did four times in 2018.Alex Brandon / AP

Federal Reserve Chairman Jerome Powell explained Wednesday why he thinks a recent stumble in the U.S. economy’s growth will be temporary.

Consumers appeared to pull back this winter, with retail sales plummeting in December and only bouncing back modestly in January. U.S. factory output has also slowed and home construction and sales fell last year. The Federal Reserve Bank of Atlanta the economy will barely grow in the first three months of this year, expanding just 0.4 per cent at an annual rate.

But Powell said that the conditions for a rebound in consumer spending are in place. Consumer confidence has recovered after falling during the 35-day government shutdown, while wages are rising steadily and hiring is healthy.

“That looks like a setting where consumption has underlying support,” Powell said.

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3:00 p.m.

Asked if the Federal Reserve might consider actually cutting rates later this year, Powell says that the current economic data does not indicate the need for the Fed to start cutting rates.

“It is a great time for us to be patient and to watch and wait,” Powell says.

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2:55 p.m.

Federal Reserve Chairman Jerome Powell sidestepped a question about why the U.S. central bank is significantly less bullish about U.S. economic growth than the Trump White House.

Fed officials are estimating growth of 2.1 per cent, a full percentage point lower than the estimates from White House aides. That is a difference of roughly $200 billion in growth, with Trump officials suggesting that the tax cuts approved at the end of 2017 will continue to bolster faster economic gains.

Despite multiple reports about Trump’s high expectations for growth, Powell says he was unfamiliar with the figures.

“I haven’t seen their projection,” he said at a news conference. “I wouldn’t comment on their projection.”

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2:45 p.m.

Federal Reserve Chairman Jerome Powell says his view on the economy is still optimistic, even as officials at the U.S. central bank sharply downgraded their projections for growth this year.

Powell said at a news conference Wednesday that “our outlook is a positive one.”

The Fed chairman stressed that the unemployment rate is still low, incomes are rising and surveys of consumers and businesses suggest that confidence in the economy remains. Fed officials are projecting a median growth of 2.1 per cent in 2019, down from growth of 3.1 per cent between the fourth quarter of 2017 and the same period in 2018.

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2:05 p. m.

Federal Reserve policymakers took a dimmer view of the economy over the next three years in a set of economic projections they released Wednesday.

They now forecast slower growth this year and next, compared to their last set of projections three months ago. And they project that the unemployment rate will rise slightly from this year through 2021.

That more pessimistic outlook is likely the main reason that the Fed forecast zero interest rate hikes this year, a sharp change in their outlook from just three months ago when they projected two hikes.

Fed policymakers expect growth will be just 2.1 per cent this year, down from 2.3 per cent in their previous forecast. It’s also much lower than the Trump administration’s forecast for 3.2 per cent growth this year. Most private economists’ forecasts are closer to the Fed’s than the administration’s.

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2 p.m.

The Federal Reserve is leaving its key interest rate unchanged and projecting no rate hikes in 2019, dramatically underscoring its plan to be “patient” about any further increases.

The Fed announced it was keeping its benchmark rate its current range of 2.25 per cent to 2.5 per cent and trimmed its expectation of two rate hikes this year to none. It projects one quarter-point rate hike in 2020 and none in 2021.

The Fed also says it will stop shrinking its bond portfolio in September, a step that would help hold down long-term interest rates.

Together, the moves signal no major increases in borrowing rates for consumers and businesses. Some analysts believe the next rate move could be a cut later this year if the economy slows as much as some fear.

The Fed’s pause in credit tightening is in response to slowdowns in the U.S. and global economies. It says that while the labour market remains strong, “growth of economic activity has slowed from its solid rate in the fourth quarter.”

Fed officials expect economic growth of just 2.1 per cent this year, down from its previous projection of 2.3 per cent growth.

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11:50 a.m.

Stocks are trading broadly lower on Wall Street and bond yields are edging lower as traders wait for the latest interest rate policy statement and economic forecast from the Federal Reserve.

The U.S. central bank is expected to reaffirm its stance later Wednesday that it will be “patient” in making future interest rate increases.

The benchmark S&P 500 index and the 30-stock Dow Jones Industrial Average were each down about 0.4 per cent in midday trading. The technology-heavy Nasdaq was down 0.2 per cent.

Bond prices rose slightly, sending yields lower. The yield on the 10-year Treasury note fell to 2.59 per cent from 2.61 per cent late Tuesday.

The yield on the two-year Treasury note held steady at 2.46 per cent.

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4:45 a.m.

Stock markets are subdued ahead of a monetary policy statement by the U.S. Federal Reserve in which the central bank is expected to say it will be patient about raising interest rates further.

Futures for the Dow and the S&P 500 are up 0.1 per cent, while European indexes are trading slightly lower. The dollar is up 0.2 per cent against the yen, at 111.57 yen.

The Fed is due to wrap up its policy meeting Wednesday and is widely expected to keep its key short-term rate in a range of 2.25 per cent to 2.5 per cent, still low by historical standards. Most analysts think the policymakers will scale back their projection of rate hikes this year from two to one or perhaps even none.

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12:05 a.m.

The Federal Reserve is expected to end its latest policy meeting Wednesday by refining its new overarching message that it plans to be “patient” about any further interest rate hikes.

The Fed is set to keep its key short-term rate in a range of 2.25 per cent to 2.5 per cent, still low by historical standards. And most analysts think the policymakers will scale back their projection of rate hikes this year from two to one or perhaps even none.

The central bank’s theme of patience reflects its calming response since the start of the year to slow growth at home and abroad, a nervous stock market and persistently mild inflation. The Fed executed a pivot when it met in January by signalling that it no longer expected to raise rates soon.

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